NUMBER 2: MONEY MARKET SAVINGS

Money market savings tend to pay a little higher interest rate than high-yield savings, but they usually require a higher minimum deposit. This is the main reason I prefer high-yield savings accounts over money market accounts, but there’s not much difference.

One advantage of money markets is that they allow check-writing and debit card withdrawals. However, you get the same benefit from your high-yield savings if it’s linked to a free checking account. You just have to take the simple step of transferring the money from your savings to checking.

That being said, either one will do a fine job storing your emergency fund.

NUMBER 3: CERTIFICATE OF DEPOSIT (CD)

In general, CDs pay about the same as a money market savings and also require a higher minimum deposit than a high-yield savings account. The only reason I rank CDs lower than money market savings is that they typically require a minimum holding period (maturity date) of 3 months. To qualify for the higher rates, you’ll usually have to agree to the longer maturity date.

Because this money will be used in an emergency, I prefer to keep CDs with a maturity date of  6 months or shorter.

NUMBER 4: SPACS TRADING AT A SIGNIFICANT DISCOUNT TO THE CASH VALUE IN THE TRUST

This is a brand new emergency fund tactic that I’ve added for 2021. It’s much riskier because the cash in a SPAC trust is not guaranteed like an FDIC-insured savings account. For example, if the SPAC gets sued and needs to pay out claims from the cash in the trust, then shareholders will be left feeling the pain. That being said, this can be a good way to add a little extra income to an emergency fund. Stick to SPACs trading for less than $9.90, that have at least $10.00 of cash per share in the trust, and that has already announced a target. Also, make sure your broker doesn’t charge any fees to redeem shares for the SPAC cash.

WHAT ABOUT CRYPTO INTEREST ACCOUNTS?

I would be very cautious about using Bitcoin and other crypto interest accounts for my emergency fund. In these accounts, you are typically lending out your crypto to a 3rd party. If the lender can’t pay, you may risk losing your principal.

I would view these crypto interest accounts as investments and I wouldn’t use any of them for my emergency fund.

WHAT ABOUT Short-term U.S. Treasuries (T-Bills)?

T-Bills typically pay higher than high-yield savings accounts and only require a $100 minimum. You can purchase durations as low as 4-weeks.  They are backed by the full faith and credit of the United States government, which has always repaid its debts for over 200 years.

Last year, T-Bills were my #2 place to park my emergency fund. This year it’s off the list completely. Last year, T-Bills paid better than even most CDs. At the time of this writing, T-bills don’t even pay as high as my high-yield savings account.

WHAT ABOUT A ROTH IRA?

I’ve seen articles recommending a Roth IRA as an emergency fund. I think that’s a bad idea, and here’s why.

As an investor, the primary purpose of my Roth is to maximize returns. If I start to comingle my investments with my emergency fund, I won’t be able to stay focused on investing. It will also be difficult to track my performance against the market since the emergency fund part of the portfolio would weigh down returns in good years.

That being said, if I’m in dire need of money and my Roth is my only option, then you bet I’ll take money out of it. However, I don’t want to get in the habit of viewing my Roth as an emergency fund for the reasons stated above.